Passive Cash Flow of $3,000 a month for $184,000

In theory one could become financially independent by implementing a mere three passive income asset sources: Rental, dividend income and covered call option income

If one had expenses of $2,500 a month then a mere $1,000 in monthly rental income, $1,000 in monthly dividend income and $1,000 in covered call option premium a month could get the job done. Is this possible? Let us find out.

First let us assume the individual has already followed through on a boiler-plate financial plan program - you know, the ones that say, pay off all debt, save up an emergency fund, pay off your house. If the individual has followed through on these steps then 1) they have lowered their monthly expenses to a low hurdle amount that our passive income sources can easily smother, in this case a monthly amount of $2,500 and 2) they have a large amount of disposable income. So the first big step in this plan:

1) Pay off all bad debt (credit cards, cars, frivilous debt) and pay off the house.

Next, buy rental property and dividend stocks that will deliver $2,000 a month in passive income. Easier said then done right, but in order to determine the solid parameters surrounding this, how much capital do you need. Assuming you are a savy investor that can find a good yield (especially in these trying stock market times) of 10%, then you need $120,000 invested in stocks. ($120,000 x .10) / 12 = $1,000 a month. Not a small amount to bat an eyelash at but it's not a million dollars either.

Now on the rental ... you are definitely going to need more than a duplex and unless you find the deal of a lifetime, you are going to need a hefty down payment or some sort of rapid repayment plan. In my area one can score a four-plex with a down payment of $34,000 which will generate approximately $600 a month in cash flow. Phantom cash flow will add-back another approximate $100 for $700. With a repayment of an approximate $30,000, one can expect to reach the $1,000 cash flow level. Total capital needed so far: $120,000 + $34,000 + $30,000 or $184,000.

Now to generate income on all those stocks you bought in step 2. Learn enough about writing covered call options to generate enough income on those stocks you hold (study, study, study) to generate $1,000 a month in income. Writing a covered call on a stock you hold is the equivalent to charging rent on your stock - a true win-win and since you already have a capital outlay in the stocks this costs you nothing. $1,000 a month is well within the realm of possibility.

So there you have it: Passive Cash Flow of $3,000 a month for $184,000.